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January 26, 2006
Hedge Funds: Technology Frontier
In one of the previous articles, we outlined and discussed the technology element in the hedge funds industry and how the prime brokers were responsible for solid technology integration in the sector. Also, we highlighted that for technology adoption to reach the next level; a lot would depend on how proactively hedge fund houses push the frontiers from the current scenario, where most of the technology needs of the sector are supplied by the prime brokers and other broking nodes.
This brings us to the inevitable question - At what stage of the growth curve will Hedge Funds establish their own technology platforms? Or a corollary of this would be - Should Hedge Funds continue to rely on Prime Brokerage Units for their technology support?
Although, hedge funds tend to be uncommunicative about their business and organizational strategy, the need to execute a lean administrative setup coupled with the responsibility for technology, including technology strategy, in all probability falls on the CFO or the COO at the larger Hedge Funds managers.
As most major Hedge Fund managers have number of funds, the mathematical complexity underlies the application of each investment strategy. With impending growth in size and increasing complexity, demand for a robust and appropriate technology platform and, subsequently, planning and implementation to accommodate migration would be critical.
It is a known fact that new financial products are the lifeblood of many hedge funds houses. Thus, technology is required to ensure that fund managers are able to deliver products efficiently and at the necessary scale for commercial viability. In essence, the function of technology could very well be the trump card in driving future growth in the sector. Now the critical question to be asked is – should such an important function be outsourced, even to Prime Brokerage Units?
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